By Kyle Springer on 21 October 2020
South-East Asia | Economic Integration
Australia and Vietnam have a well-developed toolkit for economic cooperation that has yet to be leveraged. Alongside a bilateral Strategic Partnership, both countries share membership in three significant multilateral trade agreements. These cooperative platforms have emerged at an opportune time where Vietnam is at a critical juncture in its growth, and has demonstrated leadership ambitions at regional and global levels.
This report by Senior Analyst Kyle Springer examines how Australia and Vietnam can use their economic cooperation toolkit to diversify their economic relations, shape the Indo-Pacific architecture, and solve problems like critical materials security.
Download the report
In March 2021, Policy Fellow Kyle Springer met with the Diplomatic Academy of Vietnam to discuss key insights from the report, which are outlined below.
In 2019, Australia and Vietnam set the goal of becoming top ten trading partners and aiming to double their current investment levels. Achieving this goal within the decade relies on the continued growth of Australia’s trade with Vietnam (by 10%) and vice-versa (by 14%).
The question then follows – what will drive increased Australian-Vietnam trade ties?
To answer this question, it is useful to examine Australia and Vietnam’s shared trade dilemma and subsequent agenda; both countries are highly trade exposed, with mutual interest in diversifying economic ties with Indo-Pacific partners.
“Vietnam’s prominence as a major trading economy puts it at high risk of negative measures from its large trading partners like China and the United States,” says Springer. Speaking to Australia, Springer says “Recent actions by China have revealed the extent to which some of [Australia’s] major service and merchandise exports are over-exposed to the Chinese market.”
The future of the trade relationship therefore hinges on a number of factors:
Successful implementation of trade agreements and shared frameworks will play a pivotal role in mitigating risk and achieving mutually beneficial objectives for Australia and Vietnam.
The ASEAN-Australia-New Zealand Free Trade Area (AANZFTA) is a vital framework and has been conducive in advancing trade liberalisation.
“2020 was a significant year for Vietnam and Australia under AANZFTA’s wide-ranging tariff provisions. Australia is scheduled to eliminate 100 percent of its tariffs on imported goods from other members that meet the agreed rules of origin criteria. Vietnam is scheduled to eliminate 90 percent of its tariffs under the same framework,” says Springer.
Implementation of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) also engenders strengthened trade relations between Vietnam and Australia. Specifically, the investment provisions within the agreement provide reassurance to Australian investors: the partnership establishes an investor-state dispute settlement mechanism.
In addition to these frameworks, when the Regional Comprehensive Economic Partnership enters into force, its single set of rules of origin (ROO) provisions will allow greater value chain integration among members.
“If successful, RCEP will integrate the Indo-Pacific region into a single trade bloc, within which goods and services will flow more freely,” says Springer.
Leveraging trade in key markets
Looking at the frameworks in place, Springer identifies critical materials as assets that could take advantage of the strategic partnership, AANZFTA, CPTPP and RCEP.
“Their value chains are exposed to risk and their production is often dominated by one country, making their supply an enticing tool for geopolitical leverage,” says Springer about critical materials.
Australia has significant reserves of many of these critical mineral deposits, making Australia an ideal downstream partner: Australia could directly supply Vietnam with these materials for further refining, processing, and input into manufactures.
Critical materials trade would be well supported by the various frameworks: AANZFTA’s 2020 tariffs have liberalised the critical materials trade, CPTPP provides investment and regulatory frameworks and RCEP supports an Indo-Pacific critical materials value chain.
“Combining Australia’s geology and technical know-how with Vietnam’s growing industrial capacity will help create more secure critical mineral value chains,” says Springer.
This would not only be a step towards the resolution of the production concentration and supply chain problems that plague the industry, but it would solve a strategic and economic problem using both Australia and Vietnam’s strengths.